Taking Tesla Private at $420? What’s Going On, Elon?

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Tesla CEO Elon Musk published a letter that detailed his plans to take Tesla private. Following the news company’s price rising as much as 11%.

Nexter.org tries to figure out what reason led to such announcement and what we will change.

What’s going on, Musk?

Tesla CEO Elon Musk published a letter Tuesday detailing his motive for taking the company private.

The letter was published to Tesla’s website about two and a half hours after his tweet Tuesday afternoon that said he wants to take the company private at $420 per share.

tesla-stock-private-musk-photo

Musk’s tweet said that he had obtained the funding to take Tesla private, but his letter says nothing about it. The letter also states “a final decision has not yet been made” whether or not to take Tesla private.

Tesla halted its prior to the release of Musk’s letter. The was up as high as 11% when it started trading again after the letter was published. It closed the day up 10.99%.

tesla-stock-private-musk-photo

Source: markets.businessinsider

Important to mention that, if Tesla does go private, it will not merge with SpaceX, according to Musk.

“The intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures,” he said in an email to Tesla employees.

Why does he do it?

  • Taking Tesla private would mean no more public equity funding issues

When Tesla was just getting started, issuing wasn’t an issue — it’s what a company with many years of growth is supposed to do. Musk, however, has been promising investors he won’t have to dilute current shareholders by issuing more , and given how Tesla’s bonds have performed since they were issued, debt might not be an option either. Taking Tesla out at $420 would make that promise true, and put Tesla’s funding under less scrutiny.

  • It would mean no more pesky questions for Musk from analysts

As a public company, Tesla has to file financial results with the U.S. Securities & Exchange Commission, and take questions from Wall Street analysts, who act as a proxy for real money investors. While Musk took an apologetic tone with analysts during Tesla’s second-quarter call, it was only three months ago that he was calling questions “bonehead.” Having to answer questions would be a thing of the past.

  • Tesla short sellers would feel the pain

Tesla’s gained 16% on Aug. 2 after its second-quarter earnings. But despite the rise, funds betting against Tesla have been hanging tight. If the gets taken out at $420, however, those shorts will take a bath. Of course, just the mention of a possible take out is squeezing the shorts, and probably forcing many of them to consider whether to cut their losses.

Is that legal?

elon-musk-tesla-private-pics

Source: Getty Images

The medium is the message, and when words make money, the medium is heavily scrutinized. As such, the financial markets operate under strict policies for disclosure processes.

According to a correspondent with the Financial Times, the Securities and Exchange Commission declined to comment on whether Musk violated any disclosure rules by issuing the market-moving announcement in an informal tweet.

But former SEC Chairman Harvey Pitt told CNBC he saw problems with Musk’s tweets, noting that the mention of a go-private price is “highly unprecedented … and raises significant questions about what his intent was.” If Musk can’t prove the allegedly secured funding at $420 per share, he may be accused of market manipulation or market fraud.

What does expert say?

Sonnenfeld, senior associate dean at the Yale School of Management and a CNBC contributor, said Tesla has operational problems and has lost 50 key staffers.

“There’s a lot of problems here. He can’t afford to build the new factory that he says he wants to build. This is a distracting strategy like attacking the press,” he said.

“Nobody, when they’re looking at a privatization, dangles this way and does this sort of teasing dance of choreography. Somebody only does this when they are trying to distract us with a shiny new thing,” Sonnenfeld said on ” Power Lunch.”


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Summary
Everything You Need to Know About Elon Musk's Desire to Take Tesla Private: Reasons to Do It, Consequences and What Experts Say
Title
Everything You Need to Know About Elon Musk's Desire to Take Tesla Private: Reasons to Do It, Consequences and What Experts Say
Description
Tesla CEO Elon Musk published a letter that detailed his plans to take Tesla private. Following the news company's stock price soaring as much as 13%. Nexter.org tries to figure out what reason led to such announcement and what we will change.
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